UK Construction Activity Registers Another Downturn

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The UK construction sector posted another contraction in January as rising interest rates and high inflation led to the steepest fall in house building since early 2020, survey results from S&P Global showed Monday.

The Chartered Institute of Procurement & Supply construction Purchasing Managers' Index fell to 48.4 in January from 48.8 in December. This was the biggest decline since May 2020.

The index has remained below the neutral 50.0 threshold for the second consecutive month, signaling contraction.

"There are still roadblocks ahead, but we should have faith that the sector can see a path through for better outcomes in 2023 after languishing in contraction in the last few months," John Glen, chief economist at the CIPS said.

Among three major categories, house building was the weakest-performer with the index falling to 44.8 in January. Lower volumes of residential work were attributed to rising borrowing costs, unfavorable market conditions and greater caution among clients.

Commercial activity fell for the first time in five months due to softer demand and delayed decision making on new projects. Meanwhile, at 49.7, the civil engineering activity index was close to stabilization.

Total new work decreased for the third time in the past four months. Respondents cited weak demand in the house building sector as the reason for the decline. Employment numbers also decreased for the second month. There was a sharp fall in purchasing activity since May 2020.

Regarding price pressures, the survey showed that purchase prices rose at the slowest pace since December 2020.

Finally, business expectations rebounded strongly from the 31-month low seen in December. Companies commented on improved sales pipelines and hopes of a turnaround in new orders.

Data released earlier this month showed that house prices rose at a much slower pace of 1.1 percent annually in January as buyer demand was damped by the prospect of reduced real earnings and higher mortgage rates.

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